Friday, April 17, 2015

Maryland's Prince George's County Proposes to Increase Wireless Taxes

Just a week or so after the Florida House of Representatives passed a bill which would reduce cellphone taxes, a County Executive in Maryland’s Prince George’s (PG) County proposes the opposite. County Executive Rushern Baker proposed a budget which includes a 50 percent increase in telecommunications taxes.
If passed, PG County residents would see their landline, television, and wireless tax rates go from 8 percent to 12 percent. When factoring in state and federal taxes, PG County residents would pay a total wireless tax and fee burden of 26 percent, which would be second in the country to only Chicago residents. Policymakers throughout the United States – including PG County - should instead work to lower tax rates as a means to encourage innovation and economic growth.
Additionally, lowering wireless taxes reduces prices for consumers and subsequently increases demand and competition in the wireless market. This expands the consumer base and oftentimes increases tax revenue for the jurisdiction as more consumers contribute to the pot.
I understand Prince George’s County wants to raise revenue, but a regressive wireless tax is not the way to go about it. Cutting wireless taxes, on the other hand, would substantially benefit the low-income PG County residents considering that over 56 percent of all poor American adults had only wireless Internet service as of December 2013. (This percentage has likely increased as wireless networks and wireless plans have become more available.) Taxes on Internet access should be kept as low as possible to push prices to an affordable level so every willing consumer can get online.
Wireless networks are rapidly becoming the future of broadband throughout the United States, but high tax rates slow down the pace of deployment of wireless infrastructure. The reductions in the quantity of service demanded by consumers decrease the incentive for providers to invest in infrastructure.

The transformation in wireless networks has been incredible over the past ten or more years (2G, 3G, and 4G) as more and more consumers have demanded higher quality broadband services. For this progress to continue, state and local governments should emulate Florida’s recent legislation and substantially decrease the rates of wireless and telecommunications taxes.

Thursday, April 16, 2015

Is the FCC Chairman Considering Going After Google?

Now that European Union regulators have formally accused Google of abusing its dominance in the online search market, inside sources say Federal Communications Commission Chairman Tom Wheeler is considering whether the FCC also should act to curb alleged abuses of the search giant’s market power here at home. 

At the core of the EU’s case against Google is the question of whether Google’s secret search algorithms are skewed in a way that disadvantage Google’s competitors and favor its own business segments. In bringing the charges, the EU regulators stated: “The Commission is concerned that users do not necessarily see the most relevant results in response to queries – to the detriment of consumers and rival comparison shopping services, as well as stifling innovation.”

In other words, the EU is concerned that Google, controlling approximately 90% of the online search and search advertising market in EU countries, is acting in a non-neutral fashion to the detriment of consumers and its smaller online rivals, or potential rivals. Although Google only controls about 67% of the online search market in the U.S., Chairman Wheeler is said to be concerned that the dominant Internet giant, or “edge provider” in FCC parlance, may be using its secret search algorithms to act in a “non-neutral” biased fashion to disadvantage its online rivals and potential competitors.
In fact, FCC insiders say that Wheeler is concerned not only about the impact of Google’s actions on Google’s struggling existing competitors, but also about the adverse impact on the “next Google,” the one still in the garage. After all, for many years Google, a long-time staunch proponent of new FCC “net neutrality” mandates for Internet service providers, proclaimed that, in light of its own powerful market position, it advocated adoption of net neutrality mandates not because it was concerned about harm to its own position. Instead, Google declared, early and often, and selflessly according to those experienced in the curious ways of Washington, that it was concerned only about the “next Google.”
Despite Google’s well-known and documented close relationships with those in high places in the Obama Administration, sources say Wheeler may be undeterred. These sources say he is now prepared to resist any pressures exerted by President Obama to back off – bolstered by his belief that Google has declared many times in public, and even in private meetings, that its main concern, truly, is protecting the “next Google.” Those on the inside of the agency bureaucracy say Wheeler apparently is now committed to the ideal of ensuring neutrality and non-discrimination throughout the entire Internet ecosystem.
When a coterie of top-level staffers met with Chairman Wheeler and questioned whether the Commission would want to test its authority to investigate Google’s allegedly harmful discrimination resulting from the search giant’s secret algorithms, he supposedly brushed aside these concerns. According to sources, Wheeler maintains that, now that the Commission has adopted its 300-page order, with its 1777 footnotes, implementing net neutrality mandates, the agency has a sound basis for extending its neutrality and non-discrimination mandates to the edge providers, certainly at least to dominant ones such as Google.
Wheeler reportedly said that Google likely is subject to the neutrality mandates under the Communications Act’s Title II common carrier provisions because some of its services, such as its ubiquitous messaging and chat services, fall within anyone’s ordinary understanding of regulated “telecommunications.” And Google is now entering markets around the country as an actual broadband Internet service provider in competition with other broadband ISPs, such as Comcast and AT&T, that are now classified as regulated “telecommunications” providers under the FCC’s net neutrality order.
What’s more, at the meeting with his staff, Wheeler explained that, aside from agency jurisdiction under Title II, the FCC possesses authority under Section 706 of the Communications Act to require Google to cease its allegedly harmful discriminatory practices. According to the informed sources, Wheeler is adamant that the Commission’s reach under Section 706 extends to Google because the search giant’s actions impeding the “next Googles” will adversely impact broadband deployment and adoption. In other words, Google’s non-neutral actions strike at the very heart of the “virtuous cycle” theory of investment and innovation.
Apparently, when a top staffer suggested that it might not be wise to test Section 706 ’s jurisdictional reach even while the Commission’s net neutrality order is subject to court review, Wheeler reminded her that the major ISPs themselves – admittedly under the threat of potential Title II regulation – have accepted a broad reading of the Commission’s authority under Section 706.
The sources said that Wheeler reminded those in attendance that the main virtue of the “virtuous cycle” theory upon which the Commission’s expansive view of its Section 706 authority depends is the downright appealing nature of the slogan.
And, then, before abruptly ending the meeting, Chairman Wheeler added this:
“Let’s not forget Google’s own appealing slogan, ‘Don’t Be Evil.’ I don’t see how any company with a slogan like ‘Don’t Be Evil’ can come in here and argue against any actions we take that I think are needed to promote the virtuous cycle. That would be like calling me evil, and I’m not going to stand for it – no matter how well-connected Google is over at 1600 you-know-where!”
[IMPORTANT NOTE: The sources relied upon for this blog were in my head, not at the FCC’s headquarters building. For many of the same reasons that I oppose the FCC’s strict net neutrality mandates, based on what I know now, I am not in favor of regulating Google’s search business here in the U.S., and I am concerned about the EU’s action. But regardless of what I may think about regulating Google, it is more likely now than it was before adoption of the FCC’s most recent net neutrality order that Google and other major “edge providers” will be regulated by the FCC in the future.]

Wednesday, April 15, 2015

Sound Recordings Copyright Bill Would Better Secure Rights, Reduce Inequities

The basic right of music authors and producers to the fruits of their labors is secured by copyright. The Constitution's Article I, Section 8 IP Clause gives Congress the responsibility to ensure that the copyrights of authors and producers of creative works are secured.
But in some respects, existing federal law provides inadequate and unequal copyright protections in sound recordings. And in other respects, federal law provides no copyright protections at all for sound recordings. Newly-introduced legislation in Congress would implement overdue copyright reforms for sound recordings. If enacted, the legislation will better secure those rights and bring the law into closer alignment with the Constitution.
On April 13 the Fair Play Fair Pay Act of 2015 was introduced in Congress. Sponsored by Rep. Jerrold Nadler and co-sponsored by Rep. Marsha Blackburn, the Fair Play Fair Pay Act (H.R. 1733) includes a handful of provisions that would put copyright in sound recordings on more of a free market footing. The bill's provisions would eliminate favoritism towards certain kinds of technology platforms. Such favoritism results in copyright holders receiving either no royalties or royalties significantly below market value for public performances of their sound recordings.
Included in the Fair Play Fair Pay Act - H.R. 1733 - are three important reforms for copyright in sound recordings:
H.R. 1733 finally ends terrestrial radio broadcasters' free-rider exemption from paying royalties for transmitting copyrighted sound recordings. Existing federal law specially privileges over-the-air radio broadcasting over competitors by permitting AM/FM transmission of copyrighted sound recordings without any need to obtain copyright holders' consent or pay royalties. This gives broadcast radio stations an unfair advantage over commercial music services reliant on other transmission technologies that must obtain consent or pay royalty rates. It is also an inequitable deprivation of rights for the owners of sound recordings. Under H.R. 1733, radio broadcasters would have to respect performance rights in sound recordings by negotiating with copyright holders or paying rates according to the "willing buyer/willing" seller standard (discussed below).
H.R. 1733 ensures that cable and satellite video services playing copyrighted sound recording pay copyright holders royalties approximating market value. Current federal law applies different royalty rate standards to different service technologies. Cable and satellite video services are subject to the so-called 801(b) rate standard, which misguidedly is calculated to "minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices." We have elsewhere criticized the Section 801(b) standard, which results in royalty rates set well below market value. H.R. 1733 would end the disparate rate regime. The bill would require cable and satellite video services transmitting copyrighted sound recordings to either negotiate with copyright holders or pay royalties according to the "willing buyer/willing seller" standard applicable to non-interactive Internet-based digital music services like iHeartRadio, Pandora, and Spotify. The "willing buyer/willing seller" standard defines "reasonable" rates, as payments that "most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller." In other words, the "willing buyer/willing seller" standard at least attempts to approximate market values in order to secure to copyright holders the returns they deserve.
H.R. 1733 recognizes copyrights in sound recordings made prior to 1972. Federal law does not recognize public performance copyrights in music recordings made before early 1972. Of course, recent judicial rulings strongly indicate that state common law protects public performance rights in pre-72 sound recordings. Under H.R. 1733, public performance copyrights in sound recordings would be recognized in federal law. According to the bill, music service providers seeking to transmit such recordings must either negotiate royalties with the copyright holders or pay royalties according to the willing buyer/willing seller standard applicable to music services transmitting post-72 sound recordings.
The Fair Play Fair Pay Act includes carve-outs to keep royalty rates to an administratively simple, nominal amount for small, local radio broadcast stations as well as for public radio stations. A complete royalty carve-out is also provided for both religious services and non-incidental uses. In addition, H.R. 1733 includes provisions for recognizing industry custom for processing payouts of royalties to copyright holders of sound recordings through an entity designated by the Copyright Royalty Board – that is, through SoundExchange. This aspect of the H.R. 1733 is similar to the Allocation for Music Producers Act (H.R. 1457), which was introduced in March by sponsor Rep. Joseph Crowley and co-sponsored by Rep. Tom Rooney.

In sum, the Fair Play Fair Pay ActH.R. 1733 – takes several steps in the right direction for reforming copyright in sound recordings. The bill would secure stronger and broader protections of the rights of copyright holders. It would establish an across-the-board standard for royalty rates intended to mimic market outcomes. Also, the bill would reduce the incidents of favoritism and free-riding that exists under current copyright law. Certainly, Congress should give this legislation a prompt fair hearing.

Tuesday, April 14, 2015

Protecting Copyright: Securing Rights and Improving the Copyright Office

While estimates concerning the precise impact may vary, there is no dispute that entrepreneurial activity associated with and dependent upon the protection of intellectual property is key to the overall health of the U.S. economy. According to a March 2012 report released by the U.S. Commerce Department, “[t]he entire U.S. economy relies on some form of IP, because virtually every industry either produces or uses it.” The report determined that: “IP-intensive industries directly accounted for 27.1 million American jobs, or 18.8 percent of all employment in the economy, in 2010.” Moreover, according to the Commerce Department, “IP-intensive industries accounted for about $5.06 trillion in value added, or 34.8 percent of U.S. gross domestic product (GDP), in 2010.”
Copyrighted works – including books and other literary works, films, sound recordings, and more – comprise a large portion of the overall economic benefit derived from the protection of intellectual property. Indeed, a December 2014 report claimed that the core U. S. copyright industries generated over $1.1 trillion dollars of economic output and employed nearly 5.5 million workers in 2013.
It should be obvious, therefore, that it is important for the social and economic well-being of the United States and its citizens that the nation have in place a strong copyright regime. There are two requisites for such a system – the establishment of secure legal rights and an institutional framework that facilitates the protection and transfer of such rights.
First, the rights to protection that copyright affords must be secured and recognized by law. Of course, here in the U.S., the Constitution’s Intellectual Property Clause, and our copyright laws enacted thereunder, secure copyright protection as a matter of law. (Just because the Constitution and our copyright laws secure copyright protection does not mean that everyone respects intellectual property rights. My colleague, Seth Cooper, and I have written a series of essays addressing foundational principles of intellectual property with the aim of increasing public understanding of these principles. A list of these papers, with links, is at the end of this piece.)
Second, even though copyright may be secured under law, there must be an effective, well-functioning institutional system for registering and recording the rights in order to effectuate the purpose of the rights-creating legal regime. In the U.S., that institutional role presently falls to the Copyright Office (CO), which is part of the Library of Congress, and under the supervision of the Librarian of Congress.
The U.S. Copyright Office is the place where copyright claims are registered and where documents relating to copyright may be recorded when the requirements of the copyright law are met. The Copyright Office also furnishes information about the provisions of the copyright law and the procedures for making a registration or recordation, explains the operations and practices of the Copyright Office, and reports on facts found in the public records of the Office.
According to a recent story in Network World, “IT Troubles Plague Federal Copyright Office,” last year the Copyright Office registered almost a half million creative works for copyright, including approximately 219,000 literary works and 65,000 sound recordings. It recorded about 7600 copyright records.
With this volume of copyright registrations and recordations, and the social and economic benefits associated with these processes, it is important the vital Copyright Office functions be carried out effectively and efficiently. These basic functions serve to secure copyright protection, provide constructive notice of copyright claims, and establish priority between conflicting transfers of rights. As a practical matter, the registration and recordation functions enable copyright holders to enter into business transactions, secure financing, and combat intellectual property theft.
The reality is that there appears to be much room for improvement in the functioning of the Copyright Office, especially with respect to implementing digital technologies. As the Network World story put it in the opening line: “The IT department at the nation’s Copyright Office needs more than a little work.” A just-released GAO report echoes this sentiment. The GAO report tellingly is titled: “Copyright Office Needs to Develop Plans that Address Technical and Organizational Challenges.”
My purpose here is not to denigrate the Copyright Office, its past actions, or its personnel. Rather, looking forward, it is to urge that serious attention be paid to improving the way the CO operates and to modernizing the office’s information technology infrastructure. In today’s digital environment, there is no reason why the office’s registration and recording functions – the guts of a working copyright system – should not employ up-to-date digital technologies in order to maximize efficiency and effectiveness. It may also be the case that the CO needs more personnel and funds in order to do its job.
In light of the just-released GAO report, and a spate of similar reports and comments, Congress should hold hearings soon on improving the functioning of the Copyright Office. These congressional hearings should focus both on information technology improvements, personnel resources, and budget requirements as well as fundamental structural issues involving the location of the Copyright Office within our government. (This structural issue is a subject we may well have more to say about in the future.)
In order for our copyright system to achieve its important purposes, it is necessary not only that the rights protected be secured by law, but also that the institution charged with administering the system do so in an effective and efficient manner.
*   *   *
Randolph J. May and Seth L. Cooper, "The Constitutional Foundations of Intellectual Property," Perspectives from FSF Scholars, Vol. 8, No. 13 (2013).
Randolph J. May and Seth L. Cooper, "Reasserting the Property Rights Source of IP," Perspectives from FSF Scholars, Vol. 8, No. 17 (2013).
Randolph J. May and Seth L. Cooper, "Literary Property: Copyright's Constitutional History and Its Meaning for Today," Perspectives from FSF Scholars, Vol. 8, No. 19 (2013).
Randolph J. May and Seth L. Cooper, "The Constitution’s Approach to Copyright: Anti-Monopoly, Pro-Intellectual Property Rights,” Perspectives from FSF Scholars, Vol. 8, No. 20 (2013).
Randolph J. May and Seth L. Cooper, "The 'Reason and Nature' of Intellectual Property: Copyright and Patent inThe Federalist Papers," Perspectives from FSF Scholars, Vol. 9, No. 4 (2014).
Randolph J. May and Seth L. Cooper, "Constitutional Foundations of Copyright and Patent in the First Congress," Perspectives from FSF Scholars, Vol. 9, No. 18 (2014).
Randolph J. May and Seth L. Cooper, "Life, Liberty, and the Protection of Intellectual Property: Understanding IP in Light of Jeffersonian Principles," Perspectives from FSF Scholars, Vol. 9, No. 25 (2014).
Randolph J. May and Seth L. Cooper, "Intellectual Property Rights Under the Constitution's Rule of Law,"Perspectives from FSF Scholars, Vol. 9, No. 31 (2014).
Randolph J. May and Seth L. Cooper, "Reaffirming the Foundation if IP Rights: Copyright and Patent in the Antebellum Era," Perspectives from FSF Scholars, Vol. 9, No. 38 (2014).

Randolph J. May and Seth L. Cooper, “Adding Fuel to the Fire of Genius: Abraham Lincoln, Free Labor, and the Logic of Intellectual Property, ” Perspective from FSF Scholars, Vol. 10, No. 2 (2015).

Monday, April 13, 2015

Congress Should Emulate Florida's Approach On Cellphone Taxation

In January, Florida Governor Rick Scott announced a plan to cut $470 million in cellphone and television taxes. Fortunately, Florida State legislators appear to be receptive to his plan. On April 9, the Florida House passed a $690 million tax cut that would save cellphone users a significant amount of money if the Senate signs off on the bill.
Currently, Florida residents pay the fourth highest wireless tax rate in the country when including federal, state, and local taxes. Only New York, Washington, and Nebraska have higher wireless tax rates.
Cutting wireless taxes will substantially benefit the low-income Florida residents considering that over 56 percent of all poor American adults had only wireless Internet service as of December 2013. (This percentage has likely increased as wireless networks and wireless plans have become more available.) So not only is it important that wireless taxes be cut throughout the United States – not just Florida, but also that taxes on Internet access are as low as possible in order push prices to an affordable level so every willing consumer can get online. As I’ve encouraged Congress before, this is why the House and Senate should vote to permanently extend the Internet Tax Freedom Act (ITFA), which would ban taxes on Internet access at the state and local levels. (See here and here.)
As of now, the current tax moratorium of the ITFA expires on October 1, 2015, so the permanent moratorium should be adopted as soon as possible. Permanently extending the ITFA should be legislation both parties and chambers can support because it will lead to additional market-driven innovation, content, and economic growth.

Friday, April 10, 2015

Study Finds Low-Income Persons Gain Most from 'Sharing Economy' Markets

I have written several follow-up blogs to a Perspectives from FSF Scholars entitled “The Sharing Economy: A Positive Shared Vision for the Future,” which was published last year. These pieces have referred to the welfare gains consumers have experienced in the new “sharing economy.” Many new companies employing Internet-based applications, such as Airbnb and Uber, have emerged to provide competition to traditional business models and subsequently pushed down prices in their respective markets.
In the Perspectives from FSF Scholars entitled “The Sharing Economy: A Positive Shared Vision for the Future,” Randolph May and I stated the following:
These new online applications facilitate the exchange of goods and services in a way which easily enables a range of peer-to-peer connections and which reduces transaction costs. Individuals have always been able to sell or borrow goods and services through yard sales and community markets, but the Internet has changed the process with a faster, easy-to-use information exchange. For over a decade now, companies like E-bay and Craigslist have used the Internet to lower the transaction costs of modern commerce. But more recently, an influx of new companies and Internet-based applications has emerged enabling individuals to more easily “share” their underutilized things, including, for example, their homes, apartments, and cars.
In a newly-published March 2015 scholarly paper entitled “Peer-to-Peer Rental Markets in the Sharing Economy,” New York University professors Samuel Fraiberger and Arun Sundararajan empirically tested how rental markets within the “sharing economy” are impacting consumers. Professors Fraiberger and Sundararajan found, with statistical significance, that the benefits of “sharing economy” markets have a greater impact on low-income persons than high-income persons.
The new study states:
We highlight this finding because it speaks to what may eventually be the true promise of the sharing economy, as a force that democratizes access to a higher standard of living. Ownership is a more significant barrier to consumption when your income or wealth is lower, and peer-to-peer rental marketplaces can facilitate inclusive and higher quality consumption, empowering ownership enabled by revenues generated from marketplace supply, and facilitating a more even distribution of consumer value.
The explanation of the results is quite simple. Due to the accountability and transparency that many sharing applications provide about their users, the emergence of trust between individuals to share their goods and services has shifted consumer preferences from owning to renting. People who could not afford to own a house, car, or even a power saw can now more easily rent them from others and ultimately enjoy a higher standard of living than they would have otherwise. Additionally, people who would have owned a car or power saw in the past might now rent them instead, saving a significant portion of their income.
Of course, high-income people gain from the sharing economy as well. But the savings accumulated from a shift in owning to renting is more valuable to people with low incomes than to people with high incomes. In economic terms, this is the law of diminishing marginal returns. All else equal, each dollar earned is valued less than the previous one.
Similarly, low-income people, who already own goods that can be rented out, stand to gain more from these transactions than high-income people. The extra income from sharing a car with someone is much more valuable to a poor college student than it is to a wealthy professional. As I have written before, Airbnb, for example, makes traveling less expensive, not only because it provides competition – and often lower prices – to traditional hotels, but also because travelers can share their living space while away. (See here.) In other words, as a result of the sharing economy, the same traveler on the same trip may realize economic benefits in his or her capacity as both a lessor and lessee.
The emergence of the “sharing economy” has provided large welfare gains to the economy as a whole. Consumers have additional, and often less expensive, options in everyday markets, and entrepreneurial activity has been created by ordinary people because Internet-enabled applications have vastly lowered the barriers to market entry.  
Professors Fraiberger and Sundararajan’s paper is significant in its use of empirical data to conclude that access to peer-to-peer rental markets has the effect of increasing savings for renters and increasing incomes for suppliers. While this economic effect of the “sharing economy” is beneficial to all market participants, it proves most valuable to low-income persons. The paper makes for an interesting read as well as a scholarly contribution to the limited academic literature regarding the new “sharing economy.”